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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> FPH Law (a firm) v Brown (t/a Integrum Law) [2018] EWCA Civ 1629 (16 July 2018) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2018/1629.html Cite as: [2018] 4 Costs LR 823, [2018] EWCA Civ 1629

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Queen's Bench Division
Mrs Justice Slade DBE
HQ15X03193

		Royal Courts of Justice Strand, London, WC2A 2LL
		16/07/2018

Lord Justice Coulson :

Introduction

1. This is an appeal against the judgment and subsequent orders of Slade J, in which she resolved the preliminary issue in favour of the claimant/respondent. Although the it was originally suggested that the appeal raised questions of wider importance about the consequences of an invalid Conditional Fee Agreement ("CFA"), I am in no doubt that, for the reasons given below, it does no such thing. It is also a paradigm example of the dangers of ordering a preliminary issue in vague terms, where potentially important factual matters remain in issue.

The Statutory and Regulatory Framework

2. Section 27 of the Access to Justice Act 1999 (which came into effect in 2000) replaced the existing version of s.58 to the Courts and Legal Services Act 1990 with an entirely new section. This provided as follows:

"58. — Conditional fee agreements.

(1) A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but (subject to subsection (5)) any other conditional fee agreement shall be unenforceable.

(2) For the purposes of this section and section 58A—

(a) a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and

(b) a conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances.

(3) The following conditions are applicable to every conditional fee agreement—

(a) it must be in writing;

(b) it must not relate to proceedings which cannot be the subject of an enforceable conditional fee agreement; and

(c) it must comply with such requirements (if any) as may be prescribed by the Lord Chancellor.

…

(6) A costs order made in any proceedings may, subject in the case of court proceedings to rules of court, include provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee."

3. The relevant parts of the Conditional Fee Agreements Regulations 2000 ("the 2000 Regulations") referred to at s.58(3)(c) provided as follows:

"4.— Information to be given before conditional fee agreements made

(1) Before a conditional fee agreement is made the legal representative must–

(a) inform the client about the following matters, and

(b) if the client requires any further explanation, advice or other information about any of those matters, provide such further explanation, advice or other information about them as the client may reasonably require.

(2) Those matters are–

(a) the circumstances in which the client may be liable to pay the costs of the legal representative in accordance with the agreement,

(b) the circumstances in which the client may seek assessment of the fees and expenses of the legal representative and the procedure for doing so,

(c) whether the legal representative considers that the client's risk of incurring liability for costs in respect of the proceedings to which agreement relates is insured against under an existing contract of insurance,

(d) whether other methods of financing those costs are available, and, if so, how they apply to the client and the proceedings in question,

(e) whether the legal representative considers that any particular method or methods of financing any or all of those costs is appropriate and, if he considers that a contract of insurance is appropriate or recommends a particular such contract–

(i) his reasons for doing so, and

(ii) whether he has an interest in doing so."

The Background Facts

4. This summary is taken from Slade J's judgment. Unusually for a Preliminary Issue, there were no assumed or agreed facts.
5. On 18 August 2003, a Mr Paul Douglas was injured at work. He engaged the claimant firm to pursue personal injury proceedings against his employer, Jarvis PLC. The defendant was the partner at the claimant firm who apparently dealt with Mr Douglas throughout. On 3 October 2003, the defendant prepared a CFA to regulate Mr Douglas' engagement of the claimant firm (see [4(20)] of the judgment).
6. On 15 August 2006, proceedings were issued by Mr Douglas against Jarvis. The action was still proceeding on 31 July 2009 when the defendant left the claimant firm and set up as a solicitor on his own account. The defendant took a number of his ongoing files with him, including that of Mr Douglas.
7. The defendant agreed to preserve a lien on the files of the claimant's clients that he took, for the purposes of recovering whatever fees and disbursements were properly recoverable by the claimant. The defendant gave a number of undertakings in respect of those files. Although the defendant denies that those undertakings related to Mr Douglas' file, for the preliminary issue to have any practical purpose, it has been assumed that, contrary to that position, his undertakings related to Mr Douglas' file. Specific undertakings included the following:

"(5) To provide an update of the progress of such file, in brief but adequate terms at the conclusion of every succeeding three month period…

(6) To provide [the claimant] with reasonable information about any significant developments in respect of the file including but not limited to offers to settle…"

8. On 18 December 2009, Mr Douglas entered into a new CFA with the defendant. There is nothing to indicate that this was not in the same terms as the original CFA.
9. On 13 January 2011, Mr Douglas' claim was compromised on terms which provided that Jarvis would pay a sum to Mr Douglas in settlement of his claim, and to pay his costs, which costs were to be the subject of a detailed assessment if they could not be agreed.
10. On 30 March 2011, the defendant served a bill of costs in the total sum of £84,050,72. That included the sum of £59,579.85 which was due to the claimant. In this way, some two thirds of the total bill of costs represented the claimant's costs, rather than those of the defendant.
11. On 26 April 2011 Jarvis' solicitors offered £55,000 in respect of costs. In their letter they also challenged the validity of the claimant's CFA by reference to Regulations 3 and 4 of the 2000 Regulations. On 5 May they increased the offer to £64,000 and repeated their concern about the validity of the CFA. On 6 May 2011 the defendant notified the claimant that he had rejected the offers of £55,000 and £64,000 and suggested a counter-offer of £77,000 with a view to settlement at £73,000. However, he made no reference whatsoever to the challenge that had been raised by Jarvis' solicitors (on two separate occasions) concerning the validity of the CFA.
12. Thus, on 9 May 2011, when the claimant agreed to the making of the offer of £77,000, they did so in complete ignorance of the fact that a challenge had been made to the validity of the CFA. In any event, the defendant failed even to comply with his own proposal to the claimant, because he made an offer to Jarvis' solicitors of £78,000. On 16 May 2011, Jarvis' solicitors increased their offer to £70,000.
13. There, for reasons which are wholly unexplained, the matter rested. Even though Jarvis' solicitors were prepared to offer £70,000, and the claimant was prepared to accept £73,000 (even without knowing about the challenge to the validity of the CFA), the defendant failed to effect a settlement of the costs dispute. Instead the defendant allowed the dispute with Jarvis' solicitors to continue to formal pleadings and a final determination. The claimant had no involvement in any of this.
14. On 18 November 2011, at the hearing of the detailed assessment of costs, District Judge Smedley ruled that the CFA was unenforceable because of its non-compliance with Regulations 4(2)(c) and 4(2)(e)(ii) and disallowed all the claimant's profit costs. He made an adverse costs order in the sum of £5,000.
15. The precise reasoning of District Judge Smedley is not easy to discern. There is no note or transcript of what he said. Doing my best with the materials provided, it appears that:

i) Regulation 4(2)(c) provides that before a CFA is made, the legal representative must inform the client (orally or in writing) whether he considers "that the client's risk of incurring liability for costs in respect of the proceedings to which the agreement relates is insured against under an existing contract of insurance." DJ Smedley found that this advice had not been provided.

ii) Regulation 4(2)(e)(ii) provides that, again before a CFA is made, the legal representative must inform the client (in writing) whether he considers that any particular method of financing any or all of the costs is appropriate and, if he considers that a contract of insurance is appropriate or recommended a particular contract of insurance, "whether he had an interest in doing so". It appears that District Judge Smedley thought that this sub-section was engaged but that the legal representative's interest had not been disclosed.

16. It is noteworthy, therefore, that the reasons why the CFA was ultimately found to be unenforceable were connected with the advice given at the time that the CFA was entered into, not the terms of the CFA itself. Moreover, since on Slade J's analysis the solicitor undertaking the necessary drafting in respect of the CFA was the defendant, it may be that it was the defendant who failed to give the necessary advice before the CFA was entered into. That will be an important matter for the trial.

The Preliminary Issue and the Judgment

17. The claimant brought proceedings against the defendant for damages for breach of his undertaking to keep them informed about Jarvis' solicitors' responses in the costs settlement negotiations. They allege that, if they had known that a point was being taken about the validity of the CFA, they would have instructed the defendant to accept the £70,000 which had been offered. In response, the defendant seeks to rely on the invalidity of the CFA as a complete defence to the claim, alleging that, because the claimant could not have recovered any costs from Mr Douglas under the terms of the invalid CFA, they cannot seek to recover such costs from the defendant by way of damages.
18. On 2 December 2015, Deputy Master Partridge ordered that:

"There be determined as a preliminary issue the question of whether the claimant may seek to recover damages for the loss of a chance to receive a sum from the paying party in respect of costs incurred under a CFA in respect of which no costs were recovered on detailed assessment in consequence of non-compliance with Regulation 4 of the Conditional Fee Regulations 2000 by reason of public policy or otherwise."

Speaking for myself, I find it hard to tease out the precise issue that fell to be decided as a result of this order. On one view, it was a type of reverse strike-out (can the claim be allowed to continue?) which is rarely a satisfactory basis for a Preliminary Issue.

19. In addition to the opacity of the Preliminary Issue as ordered, I have grave doubts as to whether it was an appropriate course to take in any event, in circumstances where:

a) The defendant does not accept that the relevant undertakings applied to Mr Douglas' file.

b) The defendant is now intimating a challenge to the (previously uncontested) proposition that he drafted the original CFA.

c) The problems with the CFA (as found by District Judge Smedley) concern the advice given at the time of the CFA. In the absence of a trial, there are no findings as to who gave (or failed to give) the relevant advice. As noted above, that person may have been the defendant.

d) A full trial should not have taken more than one day, and would have focussed on the real issues between the parties in a way that this Preliminary Issue has failed to do.

20. In Woodland Trust v Essex County Council [2013] UKSC 66, Lord Sumption set out at paragraph 2 of his judgment the dangers of ordering a preliminary issue on a single pleaded issue when much else remained in dispute. I respectfully adopt those remarks here; they are equally applicable to the circumstances of this case. But none of that can be a criticism of Slade J. She was faced with a preliminary issue which had been ordered by somebody else and which she had no sensible alternative but to get on and decide.
21. In her judgment, Slade J set out the relevant facts, and then summarised the contentions of the parties. She did this by reference to a large number of the authorities to which the parties referred. On analysis, most of those authorities turned out to be irrelevant to her decision, and are equally immaterial to this appeal.
22. In her conclusions at [26], Slade J said that she was not in a position to decide whether CFAs which did not comply with the 2000 Regulations were illegal as well as unenforceable, but that it made no difference to the outcome of the Preliminary Issue. She then focused on the question of unenforceability, noting at [27] that the real issue turned on whether DJ Smedley's ruling that the CFA was unenforceable was to be treated as having effect from the date from which he gave his judgment, or whether it related back to the date on which the CFA was originally agreed. At [29] Slade J said that the enforceability of any compromise of the costs claimed by Mr Douglas was to be assessed at the date it would or could have been entered into, had the defendant performed his obligations pursuant to the undertakings. She said:

"On the basis that the defendant was negotiating with the solicitors for Jarvis PLC in good faith and that there was a dispute over the enforceability of the CFA, a compromise of the claim for costs would be enforceable."

23. At [30] the judge said that "it must be assumed" that the defendant was negotiating with Jarvis' solicitors "in good faith and had a genuine belief that it was reasonably arguable that the CFA was enforceable". Conversely, at [31], she found that, if the defendant had known that the CFA was invalid, and there had been a compromise, Jarvis could subsequently have set aside and recovered any sums paid under such a compromise. Then at [33] she concluded:

"Accordingly, in my judgment whether the failure to comply with Regulation 4 rendered the CFA unenforceable, as found by DJ Smedley, was also illegal as contended by Mr Nicol, does not affect the claim for breach of contract which is to be determined on the facts of the date of the alleged breach."

24. Having concluded the preliminary issue in favour of the claimant, Slade J went on at [34] to say that the assessment of quantum of damages for the loss of the chance of a compromise of the claim for costs might be affected by the decision that the CFA was unenforceable. She explained her reasons for that. Thus, she said that the claimant was entitled to seek to recover damages for the loss of a chance, but whether that claim succeeded would be determined at a trial. Her order of 14 July 2016 reflected that conclusion. By her order of 5 October 2016, after another lengthy hearing, Slade J refused permission to appeal and ordered that the costs of the preliminary issue be the claimant's costs in the case.
25. On 27 April 2017, the defendant was granted permission to appeal to the Court of Appeal.
26. For the reasons set out below, I have concluded that, no matter how the Preliminary Issue case is analysed, Slade J's conclusion was correct.

The Conventional Analysis of the Claim

27. The conventional analysis of the claim in these proceedings is as follows. The defendant had obtained an agreement in principle that Jarvis' solicitors would pay the costs incurred by the claimant and then the defendant in pursuing Mr Douglas' case. The only remaining issue was the amount that would be paid in respect of those costs.
28. Jarvis' solicitors offered £70,000. The claimant (to whom two-thirds of any total was due) had already indicated that it would agree to £73,000. What is more, the claimant's agreement to the £73,000 was made in complete ignorance of the fact that Jarvis' solicitors had raised a point about the validity of the CFA, a point which, in the event, turned out to be well-founded. In those circumstances, it would seem more likely than not that the costs could and should have been compromised at £70,000. It is the claimant's case that the only reason that the costs were not so compromised was because the defendant failed to inform the claimant that the validity of the CFA had been challenged. In those circumstances, there would clearly be an arguable claim for damages, put on the basis of a loss of a chance.
29. That was the analysis adopted by Slade J. In addition, as noted in paragraph 23 above, she assumed that a bona fide settlement of the costs claim had been open to the parties, notwithstanding the point that had been raised about the enforceability of the CFA. Neither side has ever suggested otherwise (either before the judge or before this court). Mr Jackson demonstrated that the fact that the defendant could have reached a bona fide compromise of the costs claim was admitted in the Amended Defence.
30. I agree with the judge that, since this is a claim for breach of contract, the focus must be on putting the claimant in the position they would have been in if the contract (more specifically, the undertakings) had been performed. The breach occurred at a time (April/May 2011) when a challenge had been indicated as to the enforceability of the CFA, but that argument had not yet been formalised, let alone finally determined. If the defendant had complied with its contractual obligations, it might be said that there would never have been a determination of the enforceability or otherwise of the CFA in any event.
31. In my view, there is nothing difficult or novel about this analysis; on the contrary, it is entirely conventional. The raising of the enforceability point by Jarvis' solicitors is similar to the situation when two parties are negotiating a settlement and one has an argument, to the effect that, say, the claim is statute-barred, or that the damages claimed were excluded by operation of a particular clause of the contract, which argument, if correct, would be a complete answer to the claim. It is then for the other party to weigh up what that argument might be worth in the commercial negotiations that ensue.
32. In my judgment, Jarvis' contention that the CFA was unenforceable was a similar sort of point. Whether or not there was force in the argument was a matter to be carefully considered (in this case by both the claimant and the defendant) so that it could be given the appropriate value in the negotiations. That did not happen here because the claimant did not know that the point was being taken. It is that, therefore, that lies at the heart of the claim for a loss of a chance. But it does not affect the validity or the bona fides of any compromise that might have been reached.
33. Accordingly, it seems to me that, subject to a consideration of the new arguments which were advanced by Mr Williams before this court, Slade J's analysis was both conventional and correct.

The Decision in Binder v Alachouzos

34. In reaching her conclusions, the judge relied on the decision of the Court of Appeal in Binder v Alachouzos [1972] 2 QB 151, which held that a compromise of claims which had been made under contracts which were said to be illegal was still an enforceable compromise. Mr Williams rightly recognised that, if he could not distinguish Binder, it provided a complete answer to his appeal, because the principle in Binder meant that, even if the CFA was illegal, rather than merely being unenforceable, the claim for costs could still have been the subject of a bona fide and binding compromise. On that basis, of course, the judge was right to say that it made no difference whether the CFA was illegal or unenforceable.
35. In Binder, the underlying contracts were money lending transactions which were said to be unlawful, such that claims under them were irrecoverable. However, those claims had been the subject of a compromise, entered into by both parties on legal advice. When the defendant failed to comply with the terms of the compromise, the plaintiff issued proceedings, and the defendant sought to argue that the compromise agreement was itself unenforceable and illegal. The appeal was dismissed. The Court of Appeal found that it was not open to the defendant to reopen the question of illegal money-lending in the action on the compromise agreement.
36. Having set out the reasons why the Moneylenders Acts were to protect borrowers, at p. 158A-B, Lord Denning MR said:

"On the other hand, it is important that the courts should enforce compromises which are agreed in good faith between the lender and borrower. If the court is satisfied that the terms are fair and reasonable, then the compromise should be held binding. For instance, if there is a genuine difference as to whether the lender is a moneylender or not, then it is open to the parties to enter into a bona fide agreement of compromise. Otherwise, there could never be a compromise of such an action. Every case would have to go to the court for final determination and decision. That cannot be right."

37. Roskill LJ said at p. 459G-H:

"Mr Jackson accepted in the course of his argument yesterday that if his principal contention were right, no compromise could ever safely be entered into in any case where an allegation of unlawful moneylending was raised upon the pleadings, however tenuous the evidence to support that allegation might be. He has argued that the court is bound to look behind an agreement to compromise an action in which the issue of unlawful moneylending had been raised, and in effect to retry that issue before it can determine if that compromise can be enforced. With respect, I think that argument is unfounded."

He went on to say that "in such a case it seems to me clear that the court should encourage and when appropriate enforce any bona fide compromise arrived at, especially one arrived at under legal advice".

38. At first blush, it seems to me that the principle in Binder applies with equal force to this case: whether the CFA was illegal or merely unenforceable, a bona fide compromise of the costs claim was open to the parties in April/May 2011, and any such compromise would have been upheld by the court.
39. Mr Williams, on behalf of the defendant, sought to distinguish Binder in two ways. First, he said that the CFA was drawn up by solicitors, who are officers of the court, so that a higher standard must apply to them than was applied in Binder. He argued that, if the Binder principle applied to CFAs, it would act as an incentive for solicitors not to keep records of advice given and other matters of that sort, so that they could later take advantage of such omissions to argue that a particular CFA was enforceable. Secondly, he said that the arguments in Binder about the illegality of the underlying contracts were acknowledged as being weak, whilst here there was an unchallenged finding that the CFA was unenforceable. For the reasons set out below, I do not regard either of these points as proper grounds for distinguishing the decision in Binder.
40. As to the first point, I do not agree that some kind of higher standard should be applied to a CFA than to the sort of agreement discussed in Binder. There, the compromise was effected on legal advice, just as the CFA was here. The knowledge and experience of those involved in the drafting of the relevant agreement cannot affect the application of the principle. Such matters may conceivably go to a consideration of the bona fides of any subsequent compromise (such as a case where a solicitor knows the CFA is invalid but negotiates a compromise which assumes the contrary) but, as I have explained, that does not arise on the facts of this case, and cannot therefore be material.
41. I simply do not understand how it can be said that the application of the Binder principle to CFAs would encourage improper or slapdash conduct by solicitors, or disincentivise solicitors to do things properly. In my view, the contrary is the case. It is in every solicitor's interest to ensure that each CFA into which it enters has been properly drafted and has been agreed after the correct advice has been given (and recorded in writing). It is, with respect, nonsense to suggest that a solicitor would knowingly fail to keep the necessary records, in order to have a better chance later of arguing that a particular CFA was legal or enforceable. And to what possible end could such a strategy go, other than to demonstrate his or her own bad faith?
42. Mr Williams was eventually forced to concede that, if his proposition was correct, it would mean that every compromise on costs, based on an underlying CFA which was subsequently found to be invalid, would always be capable of being opened up, because the illegality or unenforceability of the CFA would automatically strike down the compromise based upon it. That was the very argument which the Court of Appeal rejected in Binder. There is no basis for resurrecting it here.
43. More widely, it seems to me that the argument that the CFA must be treated as if it was always illegal or unenforceable (thus striking down any agreement subsequently based upon it), is commercially unrealistic. It would discourage the compromise of costs issues, and instead encourage lawyers for the losing party to work through existing CFAs with a fine-tooth comb to try and find a reason why the entire CFA was illegal or unenforceable, so as to provide the losing party with some sort of windfall on costs. Solicitors enter into CFAs in good faith, as a way of providing legal services to a claimant who needs them and who would otherwise be unable to pay for them. Sometimes things go wrong, and the CFA which has been entered into will be found to be unenforceable. But it would go much too far to say that such a result must always strike down an earlier bona fide compromise of costs based on that CFA.
44. As to Mr Williams' second submission, the fact that the argument about the underlying illegality in Binder was thought (primarily by Phillimore LJ) to be weak does not detract from the principle which the case sets out. Moreover, the submission ignores the point noted in paragraph 30 above: at the relevant time in the present case, there was no finding that the CFA was unenforceable, simply an assertion to that effect.
45. Finally (and for completeness) I note that in his skeleton argument, Mr Williams suggested that Binder could be distinguished in a third way, because it concerned an actual compromise, whilst here there was no compromise in fact. In my view, there is nothing in that point, which was not pursued orally. The defendant cannot hide behind the absence of a compromise agreement in order to distinguish Binder, in circumstances where the absence of such compromise agreement is at the heart of the claim against the defendant and may well have been his fault. Roskill LJ said that it was the courts' policy to encourage compromise and to enforce such compromise agreements as are reached. Binder could be regarded an example of the latter category; this case is an example of the former. Both are equally valid policy principles which have not altered in the 46 years since Binder was decided.
46. For all those reasons, I consider that Mr Williams' attempt to distinguish Binder must fail. On the application of its principles, the claimant in the present case has an arguable claim in law that a bona fide compromise of Jarvis' costs liability could and should have been reached in April/May 2011.

Other Matters

47. As previously noted, Mr Williams' primary argument in his skeleton argument was to the effect that the CFA was illegal, although that suggestion is not even pleaded in the defendant's Amended Defence. Amongst other things, this allowed him to suggest that, if the CFA was illegal, then so too were the undertakings that the defendant originally gave to the claimant. However, in his supplemental skeleton, he wisely rowed back from that startling proposition. More importantly, he acknowledged that, if his Binder argument was unsuccessful, the question of illegality became academic. Mr Jackson agreed with that.
48. In those circumstances, it would not be appropriate to embark upon an investigation into whether the old common law rule as to the unlawfulness of CFAs (derived from Wallersteiner v Muir [1975] 1 QB 373 and Awwad v Geraghty & Co [2001] QB 570) survived the amendments which came into force in 2000 (paragraph 2 above), or whether it is now more appropriate to categorise non-compliant CFAs as simply unenforceable (the word used repeatedly in s.58 itself). That must await a case where such an investigation would affect the outcome.
49. After the hearing, on 18 June 2018, Mr Brown (the solicitor who instructed Mr Williams and the man whose conduct lies at the heart of this case) wrote to the court seeking to raise a new point, to the effect that, if the principles in Binder applied to this case, a client would never be able to challenge the validity of his own solicitors' retainer following a compromise on costs, because the compromise itself would have been between the client and the paying party. He suggested that, as a result, the client would not be able to reopen that compromise.
50. I consider that this argument (which is as extreme as that noted in paragraph 42 above, albeit to the opposite effect) is wrong for three reasons. First, the Court of Appeal in Binder made clear that the court was able to go behind any compromise if the justice of the case required it: see Lord Denning at 157H and Phillimore LJ at 159E.
51. Secondly, the possibility of a subsequent challenge to the compromise (on the assumption that there had been a compromise in this case) was expressly noted by Slade J at [33] and [34] of her Judgment. The defendant does not seek to challenge that finding. It is self-evidently correct.
52. Thirdly, on the example set out by Mr Brown in his letter, there would be two possible results. On the assumption that the solicitor was acting properly, he would have told the client (prior to any compromise on costs) about the challenge to the CFA and given advice as to the potential conflict of interest that arose. If the client thereafter entered into a compromise on costs on a fully informed basis, there could be no reason subsequently to set aside that compromise. If such full and frank advice was not given, the client would not be precluded from later disputing the validity of the CFA and thus, at least potentially, opening up the compromise.

Conclusions

53. For the reasons set out above, I would dismiss this appeal.

Sir Colin Rimer :
 


54. I agree with both judgments.

Lord Justice Patten :
 


55. I agree that this appeal must be dismissed. Like Coulson LJ I question whether this was an appropriate case for the determination of a preliminary issue and I agree with his criticisms of the terms in which the preliminary issue was formulated. But Slade J interpreted the order as raising what is essentially an issue of causation about the enforceability of any compromise which the claimant firm, FPH Law, might have entered into with Jarvis in relation to Mr Douglas's costs.
56. As the paying party Jarvis would have been entitled to take the point about the enforceability of the CFA because this impacted directly upon the liability of Mr Douglas to pay his own solicitors and therefore upon his ability to recover the costs from Jarvis under the indemnity principle. But, as Coulson LJ has explained, the offer of £70,000 made by Jarvis's solicitors on 16 May 2011 came at a time when there had been no judicial determination of the enforceability of the CFA and where (it has for present purposes to be assumed) there remained a bona fide dispute about its enforceability.
57. In these circumstances there can have been no objection based on public policy to the claim for costs being compromised and to FPH Law recovering whatever was their appropriate percentage of the sum paid. Any such compromise would necessarily take into account the position of Mr Douglas and his then theoretical ability to challenge his solicitors' right to recover their profit costs.
58. Although Mr Williams contends that the breach of the regulations rendered the CFA an illegal rather than an unenforceable contract, the judge declined to decide this issue because in her view it made no difference. It is clear from the decision of this court in Binder v Alachouzos that there can be an enforceable compromise of liability even under an illegal contract provided that it is made in good faith. The notional compromise of the costs liability envisaged by this claim would have been a compromise of Jarvis's liability to pay Mr Douglas's costs under the terms of the compromise of 13 January 2011. The defendant, Mr Brown, would have had his client's actual authority to negotiate and agree a sum in respect of costs and Mr Douglas would be bound by the agreement which was reached in the absence of some specific rule of public policy which prevents there being an enforceable compromise of liability in respect of a disputed CFA.
59. The judge rejected this and she was right to do so. I am unpersuaded that it is possible to identify some public interest in preventing the compromise of honest disputes about the enforceability of a CFA. The highest that Mr Williams was able to put it was that the possibility of being able to reach an enforceable compromise of a claim for costs against the background of an arguably unenforceable CFA might encourage solicitors to be less than rigorous in keeping records and attendance notes in relation to the making of CFAs knowing that a lack of documentation would not prevent (and might even assist) them in maintaining that all the necessary formalities had been complied with. Like Coulson LJ I regard this argument as unrealistic. To achieve certainty in the recovery of their profit costs solicitors will need to keep appropriate records of the steps taken in relation to the making of a CFA. But I also doubt whether one can construct a rule of public policy of the type for which Mr Williams contends out of considerations of this kind. Solicitors who fail to keep proper records may find that this operates against rather than in favour of their ability to enforce a CFA. But in any event, a rule which makes it legally impossible to compromise a dispute relating to the enforceability of a CFA requires the identification of a more fundamental policy driver than this if it is to override the obvious public interest in settling disputes and avoiding unnecessary litigation. None has been suggested in argument on this appeal.